Segmenting diesel market will help

National oil companies have raised petrol prices again and, predictably, everyone is up in arms. Didi promises to lead the charge. Meanwhile, the Prime Minister's muted support for price hike notwithstanding, at least a section of the media will have us believe that the government has contemplated withdrawing the 'freedom' to determine petrol prices given to its errant vassals. Now who on earth, in this maelstrom of discontent, wants to debate diesel deregulation?

For the uninitiated, consumption figures available on the website of the Petroleum Planning and Analysis Cell ( PPAC) show that diesel, kerosene and LPG make up for almost 60% of all the petroproducts consumed in the country. And they all happen to be subsidised. Petrol forms a mere 10% of the product basket. Hence, the deregulation of petrol was always a case of some tokenist reformer pretending that the tail could wag the dog.

Fact is diesel accounts for a whopping 43% of the entire basket. And as the differential between petrol and diesel mounts, every rational consumer can be expected to try every trick in the book to switch any other substitutable non-subsidised fuel for diesel. Little wonder that diesel is currently seeing a growth of 8.7%, leading to the inexorable dieselisation of the economy.

While it does not need a bleeding heart to make a case for fuel subsidies, the point is that the administration of subsidies cannot be a game of passing the parcel. After all, with a provision of barely Rs 1.85 per litre for marketing costs and margin, what is the scope for marketing companies to bear diesel under-recoveries as high as Rs 8.57 per litre at current prices? With subsidised products making up 60% of the basket, any attempt to pass such a weighty parcel will surely end up in one or the other player tipping over.

A more rational way may be to segment the diesel market through product differentiation: farm- or railway grade diesels, that at least would obviate the need to subsidise the private car segment. But more importantly, either the government should have the courage of its reformist convictions and decontrol diesel, or do away with the current sham reform over petrol pricing that is so angering the nation.